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Namaste Company The Business Situation Namaste Company manufactures a unique yoga mat. The company began operations December 1, 2018. Its accountant quit the second week of operations, and the company is searching for a replacement. The company has decided to test the knowledge and ability of all candidates interviewing for the position. Each candidate will be provided with the information below and then asked to prepare a series of reports, schedules, budgets, and recommendations based on that information. The information provided to each candidate is as follows. Cost Items and Account Balances Administrative salaries Advertising Cash, December 1 Depreciation on factory building Depreciation on office equipment Insurance on factory building Miscellaneous expenses-factory Office supplies expense Professional fees Property taxes on factory building Raw materials used Rent on production equipment Research and development Sales commissions Utility costs-factory Wages-factory Work in process, December 1 Work in process, December 31 Raw materials inventory, December 1 Raw materials inventory, December 31 Raw material purchases Finished goods inventory, December 1 $15,500 11,000 -0- 1,500 800 1,500 1,000 300 500 400 70,000 6,000 10,000 40,000 900 70,000 -0- 70,000 -0- 10,000 Production and Sales Data Number of mats produced Expected sales in units for December ($40 unit sales price) Expected sales in units for January Desired ending inventory Direct materials per finished unit Direct materials cost Direct labor hours per unit Direct labor hourly rate 8,000 10,000 20% of next month's sales 1 kilogram $7 per kilogram .35 $20 Cash Flow Data Cash collections from customers: 75% in month of sale and 25% the following month. Cash payments to suppliers: 75% in month of purchase and 25% the following month Income tax rate: 45%. Cost of proposed production equipment: $720,000. Manufacturing overhead and selling and administrative costs are paid as incurred. Desired ending cash balance: $30,000. Instructions Using all the data presented above, do the following. 1. Classify the costs as either product costs or period costs using a five-column table as shown below. Enter the dollar amount of each cost in the appropriate column and total each classification. Direct Materials Product Costs Direct Manufacturing Labor Overhead Period Costs Item 2. Classify the costs as either variable or fixed costs. Assume there are no mixed costs. Enter the dollar amount of each cost in the appropriate column and total each classification. Use the format shown below. Assume that Utility costs-factory are a fixed cost. Variable Costs Fixed Costs Total Costs Item 3. Prepare a schedule of cost of goods manufactured for the month of December 2018 4. Determine the cost of producing a mat. 5. Identify the type of cost accounting system that Namaste Company is probably using at this time. Explain. 6. Under what circumstances might Namaste use a different cost accounting system? 7. Compute the unit variable cost for a mat. 8. Compute the unit contribution margin and the contribution margin ratio. 9. Calculate the break-even point in units and in sales dollars. 10. Prepare the following budgets for the month of December 2018. (a) Sales. (b) Production. (c) Direct materials. (d) Direct labor. (e) Selling and administrative expenses. (f) Cash. (g) Budgeted income statement. 11. Prepare a flexible budget for manufacturing costs for activity levels between 8,000 and 10,000 units, in 1,000-unit increments. 12. Identify one potential cause of direct materials, direct labor, and manufacturing overhead variances in the production of the helmet. 13. Determine the cash payback period on the proposed production equipment purchase, assuming a monthly cash flow as indicated in the cash budget (requirement 10f). Namaste Company The Business Situation Namaste Company manufactures a unique yoga mat. The company began operations December 1, 2018. Its accountant quit the second week of operations, and the company is searching for a replacement. The company has decided to test the knowledge and ability of all candidates interviewing for the position. Each candidate will be provided with the information below and then asked to prepare a series of reports, schedules, budgets, and recommendations based on that information. The information provided to each candidate is as follows. Cost Items and Account Balances Administrative salaries Advertising Cash, December 1 Depreciation on factory building Depreciation on office equipment Insurance on factory building Miscellaneous expenses-factory Office supplies expense Professional fees Property taxes on factory building Raw materials used Rent on production equipment Research and development Sales commissions Utility costs-factory Wages-factory Work in process, December 1 Work in process, December 31 Raw materials inventory, December 1 Raw materials inventory, December 31 Raw material purchases Finished goods inventory, December 1 $15,500 11,000 -0- 1,500 800 1,500 1,000 300 500 400 70,000 6,000 10,000 40,000 900 70,000 -0- 70,000 -0- 10,000 Production and Sales Data Number of mats produced Expected sales in units for December ($40 unit sales price) Expected sales in units for January Desired ending inventory Direct materials per finished unit Direct materials cost Direct labor hours per unit Direct labor hourly rate 8,000 10,000 20% of next month's sales 1 kilogram $7 per kilogram .35 $20 Cash Flow Data Cash collections from customers: 75% in month of sale and 25% the following month. Cash payments to suppliers: 75% in month of purchase and 25% the following month Income tax rate: 45%. Cost of proposed production equipment: $720,000. Manufacturing overhead and selling and administrative costs are paid as incurred. Desired ending cash balance: $30,000. Instructions Using all the data presented above, do the following. 1. Classify the costs as either product costs or period costs using a five-column table as shown below. Enter the dollar amount of each cost in the appropriate column and total each classification. Direct Materials Product Costs Direct Manufacturing Labor Overhead Period Costs Item 2. Classify the costs as either variable or fixed costs. Assume there are no mixed costs. Enter the dollar amount of each cost in the appropriate column and total each classification. Use the format shown below. Assume that Utility costs-factory are a fixed cost. Variable Costs Fixed Costs Total Costs Item 3. Prepare a schedule of cost of goods manufactured for the month of December 2018 4. Determine the cost of producing a mat. 5. Identify the type of cost accounting system that Namaste Company is probably using at this time. Explain. 6. Under what circumstances might Namaste use a different cost accounting system? 7. Compute the unit variable cost for a mat. 8. Compute the unit contribution margin and the contribution margin ratio. 9. Calculate the break-even point in units and in sales dollars. 10. Prepare the following budgets for the month of December 2018. (a) Sales. (b) Production. (c) Direct materials. (d) Direct labor. (e) Selling and administrative expenses. (f) Cash. (g) Budgeted income statement. 11. Prepare a flexible budget for manufacturing costs for activity levels between 8,000 and 10,000 units, in 1,000-unit increments. 12. Identify one potential cause of direct materials, direct labor, and manufacturing overhead variances in the production of the helmet. 13. Determine the cash payback period on the proposed production equipment purchase, assuming a monthly cash flow as indicated in the cash budget (requirement 10f)